Report to: General Committee Report
Date:
SUBJECT: Governance Options for
the Management and Operating Structure of the Operating Authority for the
PREPARED BY:
RECOMMENDATION:
THAT the report titled “Governance Options for the Management and Operating Structure of the Operating Authority for the Markham Water Distribution System” be received;
AND THAT Council directs staff to proceed with the implementation strategy for the Quality Management System leading to Accreditation of the Town as the Operating Authority for the Markham Drinking Water System based on the existing operational structure - Model #1;
And that Staff be authorized and directed to do all things necessary to give effect to this resolution.
EXECUTIVE SUMMARY:
Six models for governance and operation of
the
·
Model 1 – Town as Owner; Town Staff/Department as the Operating
Authority
·
Model 2 – Town
as Owner; Appointed Municipal Service Board as the Operating Authority
·
Model 3 – Town
as Owner; Private Company as the Operating Authority
·
Model 4 - Ownership and Operation by a
Municipal Service Corporation
·
Model 5 – Ownership by a Joint
Municipal Service Board; Operating Authority assigned by the Joint Municipal
Service Board
·
Model 6 – Transfer of Ownership
and Operation to
Model #1 - Town as
Owner; Town Staff/Department as the Operating Authority
Model #1
represents the current arrangement for the management
and operating structure of the Operating Authority for the Markham Water
Distribution System. This model has many benefits, but places all
of the responsibilities of the Owner and Operating Authority on The Corporation
of the Town of
Model #2 - Town as Owner; Appointed Municipal Service
Board as the Operating Authority
Model #2
provides the scenario for the Town to transfer the responsibilities of the
Operating Authority to a Municipal Service Board. The Municipal Service Board has board members
appointed by Council, but functions like a separate corporation acting as an
agent for the Town for the “control and management” of the drinking-water
system and services. The Town remains
the owner of the drinking water system. The
majority of operational decisions are made by the appointed members of the
service board or by the staff employed by the service board. Some decision making is still made by Town as
the Owner, through Council resolutions, such as setting the annual water rate,
approval of major capital expenditures, and policy changes. In the past municipal service boards of this
type operated as Public Utility Commissions (PUCs).
Model #3 – Town
as Owner; Private Company as the Operating Authority Model #3 is the option of contracting the operation of the drinking
water system out to a private water system operator such as the Ontario Clean
Water Agency or other private company under a contractual service
arrangement. It would also be possible
to contract out the operation of the system to another municipality that has
already achieved accreditation as an Operating Authority. The Town remains the
owner of the drinking-water system. The Town would be giving up the duties and
responsibilities of the Operating Authority, and would also be giving up some control
of the day-to-day operations of the system.
As in Model #2, major decisions such as the annual water rate, major
approval of capital expenditures, and policy changes are still made by Town as
the Owner, though Council resolutions.
Model #4 - Ownership and Operation by a
Municipal Service Corporation
Model #4 is the creation of a separate
Municipal Service Corporation to own and operate the
Model #5 - Town as Owner; Appointed Jointed Municipal Service Board as the Operating Authority
Model #5 is the creation of a Joint
Municipal Service Board along with another municipality to act as an agent for the various
municipalities for the “control and management” of the drinking-water system
and services. The Town would
still retain ownership of the drinking-water system. This model is similar to
Model #2, but it is used where a regionalized service that benefits two or more
municipalities is desirable. Setting up
a Joint Municipal Service Board could involve some or all of the municipalities
in the southern portion of York Region that already have interconnected water
systems. The majority of operational decisions are made by the appointed members
of the service board or by the staff employed by the service board. Some decision making is still made by Town as
the Owner, through Council resolutions, such as setting the annual water rate,
approval of major capital expenditures, and policy changes. In the past municipal service boards of this
type operated as Public Utility Commissions (PUCs).
Further analysis is necessary to define the roles and responsibilities that that the Town and Council would have under this model with respect to the SDWA, revenues, service levels, and joint ownership of shared resources such as reservoirs and pumping stations.
Model #6 - Transfer of Ownership and
Operation to
Model #6 is a
transfer of the ownership and operation of the drinking-water system to the
Region of York. In 2002 York Region initiated a review of this model, and the review
was completed in 2005. At that time
there was no support among the local municipalities or Region to transfer
ownership and operation of the local water distribution systems to the Region
Impacts on
Municipal Licensing Program Strategy for
In conclusion,
since the Town must apply for accreditation as the Operating Authority prior to
PURPOSE:
The purpose of
this report is to advise Council of the various governance options possible for
the management and operating structure of the Operating Authority for the
BACKGROUND:
Relationship of Governance Models to the Safe Drinking
Water Act
Council has asked
staff to review and present various governance options for the management and
operating structure of the Operating Authority for the
“(a) exercise
the level of care, diligence and skill in respect of a municipal drinking water
system that a reasonably prudent person would be expected to exercise in a
similar situation; and
(b) act honestly, competently and with
integrity, and a view to ensuring the protection and safety of the users of the
municipal drinking-water system”
The Safe Drinking Water Act, Section 51 permits a municipality to transfer ownership of a municipal drinking-water system to a private company, but the municipality must ensure that municipal responsibility for the system is maintained. The system would continue to be classified as a municipal drinking-water system and would remain subject to all of the requirements under the Act related to municipal drinking-water systems. This provision, along with the definitions and restrictions placed on municipal service boards and municipal service corporations in the Municipal Act creates the framework for the models discussed.
Components of the Municipal
Licensing Program
The
- Accredited Operating Authority
- Accepted Operational Plans
- Drinking Water Works Permit (DWWP)
- Approved Financial Plans
- Permit to Take Water (PTTW)
- Municipal Drinking Water Licence
The SDWA requires the Owner of the drinking-water system to ensure that an accredited operating authority is in charge of the system at all times. The process for the Operating Authority to become accredited is through the submission and acceptance of the Operational Plan created in conformity with the provincial Drinking Water Quality Management Standard (DWQMS). The Operating Authority must then demonstrate that the Operational Plan is in conformity with the DWQMS and that the Operating Authority is implementing the Operational Plan, and through an ongoing external audit process.
OPTIONS/ DISCUSSION:
There are six basic options
or models that can be considered for the operation of the municipal drinking
water system. Each option is listed in
Table 1, and a description of each is given in the following sections.
The prescribed responsibilities
and duties of the owner of the system as defined in the Safe Drinking Water Act do not change under any of the six governance
options, so a description and discussion of the owner is also provided for each
model. So long as the Town retains ownership of the
drinking water system, the Town is responsible for the operation of the system
in accordance with the Act.
Consideration must be made to address all of the responsibilities of
the Operating Authority. The “operating authority”
means, in respect of a drinking-water system, the person or entity that is
given responsibility by the owner for the operation,
management, maintenance or alteration of the system. It is for this reason that the DWQMS requires
a definition of the roles, responsibilities and authorities within the
operating authority within the Operational Plan.
This report provides a
summary of the benefits and/or draw-backs of each option. This report does not provide a recommendation
with respect to which model would be best in terms of the operation of the
system and in terms of benefit to the Town.
Further analysis would be required, including a complete financial
analysis, legal and liability analysis, and labour relations analysis before a
decision to alter the existing structure can be made. This report can form the
basis of further investigation, with the understanding that changing the
underlying governance structure could take many months or years to fully
implement once a decision is made. Given that the Town must proceed towards
implementation of a quality management system and accreditation as the
Operating Authority within the next 12 months, it is recommended that the Town maintain
the current operating structure (Model #1).
Table
1
|
|
Model |
Owner |
Operating Authority -
Options |
|
#1 |
Town as Owner; Town Staff/Department as the
Operating Authority |
Town |
a. Town - Municipal
Department(s) reporting to General Committee of Council b. Town - Municipal
Department(s) reporting to a Sub-Committee of Council |
|
#2 |
One system, under the ownership and control of a
single municipality, operated by a Municipal Service Board |
Town |
a. Municipal
Service Board |
|
#3 |
Town as Owner; Private Company as the Operating
Authority |
Town |
a.
b.
Contracted operating service company c.
Another municipality |
|
#4 |
Ownership
and Operation by a Municipal Service Corporation |
Municipal Service Corporation |
a.
Municipal Service Corporation b.
Contracted operating service company |
|
#5 |
Town
as Owner; Appointed Jointed
Municipal Service Board as the Operating Authority |
Town, in partnership
with adjacent municipalities |
a. Joint
Municipal Service Board b. Contracted
operating service company |
|
#6 |
Transfer
of Ownership and Operation to |
Region of |
As determined
by the new Owner |
Model 1 – Town as Owner; Town Staff/Department as
the Operating Authority
Under this model the Town of
The majority of water
systems in
1 a) Municipal Department Reporting to General
Committee of Council
Segregation of the
Under this model the
municipality (Corporation) owns the water system, therefore it is incumbent on
the municipal council to ensure that the drinking water system is competently
designed, constructed, managed and operated. Council must be adequately informed about the
management and operation of the system in order to adequately fulfill their
oversight responsibilities as required under Sections 11 and 19 of the Safe Drinking Water Act. The successful implementation of a quality
management system addresses these concerns through the various elements of the Drinking
Water Quality Management Standard (DWQMS), including the reporting requirements
outlined in Element #20 - Management Review.
This model has two potential disadvantages with respect to good
management of the system. First, this
model can lead to fragmentation of responsibility among operating departments. Good management of the drinking water system
can be undermined by poor communication between departments, inadequate
resources or management practices in the associated departments, and
conflicting priorities and expectations.
Secondly, Council must be ensure that that full-cost accounting for
water related activities is employed so that adequate funding through the water
rate and user fees is provided, and that water related revenues are not
diverted for other corporate purposes. The
successful implementation of a quality management system addresses these
concerns through the creation of the Operational Plan, standardized operating
procedures across department, and the reporting requirements of the Element 20
- Management Review under the DWQMS. The concern regarding full-cost accounting
and resource allocations will be addressed through the Financial Plans Regulation
(O.Reg. 453/07) requirement of the Municipal Licensing Program.
It should be noted that
the report prepared by Delcan Limited with respect to the Water
1 b) Municipal Department Reporting to a Sub-Committee
of Council
Council may wish to create a sub-committee of Councillors and Commissioners to manage all aspects of the Operating Authority for the system. This sub-committee would then report directly to the General Committee, but the Sub-Committee would have full authority over the management of the drinking water system, including review of the Capital and Operating Budgets for the water system. The sub-committee would then obtain Council approval of expenditures, policies and procedures.
In this model a single municipal Department would typically be
responsible for all aspects of engineering, construction, operation,
maintenance, and alternation of the drinking water system. The Head of that Department would report
directly to the Water System Sub-Committee.
This model has been implemented in the City of
This model addresses the ability of Council members
to fulfill
their decision making role and their responsibility for overseeing the
activities of the Operating Authority.
The smaller sub-committee can be better informed, and can focus more of
their time on the operation of the water distribution system.
Model 2 – Town as Owner, Appointed Municipal
Service Board as the Operating Authority
Under this model the Town
of
In 2006, the Municipal Act and the Municipal Elections Act were amended, and all Public Utility Commissions (PUC), were converted to municipal service boards. The principal difference is that board members are to be appointed by council, rather than elected directly. The members of the service board include a minimum of two or more elected councillors and (other) private citizens. Members of the board have a maximum term of four years. A municipality may give a municipal service board the control and management of such services and activities of the municipality as the municipality considers appropriate and shall do so by delegating the powers and duties of the municipality to the board in accordance with the provisions of the Municipal Act.
Municipal service boards are set
up as corporations unless the municipality provides
otherwise when establishing the board. It is possible for the municipal service
board to exercise all of the powers of Owner including control of all revenues
and expenditures, including capital expenditures. More commonly, the municipal service board
manages the operating budget and small capital projects. Major capital projects are typically referred
back to the municipality for approval. The
municipality remains the owner of the drinking water system, and the duties of
the municipality as the Owner are therefore unchanged. The municipal service board will normally
provide all of the functions of the Operating Authority including all
departmental support such as Human Resources, Information Technology Services,
Financial Services, Fleet and Facilities Management.
The greatest advantage of this
model is that the sole function of the Municipal Service Board is governing the
water system, and therefore the Board members are focused and more aware of the
needs of the water system. Operational decisions regarding the provision of water
are consolidated, and finances are controlled within the Service Board, but
revenues are raised by municipal levy.
The disadvantage is that cost savings possible by the consolidation of
administrative functions within the municipality are reduced along with the
opportunities for capital project coordination.
Further, the service board cannot borrow money on its own behalf to fund
major projects, on market terms and conditions, without competing with other
municipal needs under the constraints of the Municipal Act.
Model 3 - Town as Owner; Private Company as the Operating Authority
Under Model #3 the municipality may decide to
contract with an external operating agency, including the Ontario Clean Water
Agency, a private company, or another municipality for the day-to-day operation
of the system. In this model the
ownership of the drinking water system still resides with the Town. Therefore, the Town’s responsibilities as the
owner under the Safe Drinking Water Act
are not changed or diminished.
Similarly, the private operating company has the same requirements to be
fully accredited under the Municipal Licensing Program and to adhere to all the
requirements of the Safe Drinking Water
Act. An overview of each of these types of contracted service is presented
below.
This model is more commonly used where a
municipality contracts out the operation of the water treatment facilities, but
manages the distribution system in-house.
This allows the municipality to focus on customer service, metering, and
billing. The contracted agency only
provides the technical expertise necessary to operate the treatment facility,
pumping stations, reservoirs and major transmission mains. In this case, the municipality must still
provide an oversight role for the contracted service, along with the operation
of the distribution system.
This model can be criticized in that the
Operating Authority provides only minimal service and investment in the system
because the private company is not the owner and sees no return on the
investment. Their profits are derived
solely from payments for service from the owner so there is little incentive for
the Operating Authority to maintain the system beyond the minimal level
necessary to keep the system functional and compliant. Similarly, the municipality will have very
little control over service levels provided by the contractor without incurring
additional costs. The duration of most such services contracts is five to ten
years.
3 a)
The Ontario Clean Water Agency is a
provincial Crown corporation established under the Capital Investment Plan Act of 1993. The Act sets out OCWA’s
objectives, including its mandate to provide operations and maintenance
services to municipalities on a cost-recovery basis. Although OCWA’s mandate
has changed significantly since it was originally created, its primary purpose
remains the same: to operate water systems under contract with the municipal
owner. OCWA is a useful vehicle for the provincial government to take control
of water systems in circumstances where it finds it necessary to mandate the
restructuring of “non-viable” municipal systems or to respond to emergency
situations, as in the case of Walkerton.
3 b) Contracted
Operating Service Company
The private sector offers an option for
municipalities seeking to contract with an external operating agency. There are
a number of companies operating in
3
c) Contracted Service from another Municipality
It would be possible for one municipality to contract the operation of
its water system to another municipality.
This might be beneficial for some small municipalities which could
contract the operations out to a nearby larger municipality. In the case of
Model 4 – Ownership
and Operation by a Municipal Service Corporation
4 a) Municipal Service Corporation
The Municipal
Act Section 203, and Regulation 599/06, and the Public Utilities Act
allow municipalities to create corporations to deliver services including the
provision of drinking water and sewage disposal. This model would be similar to the existing
structure and operation of Powerstream for the supply of electricity. The corporation would be the owner and
operating authority of drinking water system for the purposes of the Safe
Drinking Water Act (SDWA). In
this way the Town retains some control over the governance and operation of the
drinking water system, but is legally removed from the duties as the owner and
operating authority, except to the extent that it remains the “shareholder”. Further
analysis is necessary to define the roles and responsibilities that that the
Town and Council would have under this model with respect to the SDWA.
The Town must consult the public about the proposal to establish the corporation prior to the establishment of the corporation through the preparation and publication of a business case study. Other avenues of public consultation may also be appropriate in accordance with Town Policy. Private Ownership of any part of corporation or its assets is prohibited. Further analysis is necessary to define the roles and responsibilities that the Town and Council would have under this model with respect to the SDWA. Typically the Town’s CAO or one or more staff persons or councillors will sit on the Board of Directors of the Municipal Service Corporation.
A separate corporation offers
many advantages over direct municipal governance. Governance by board members
provides the opportunity to draw on the expertise of objective, qualified and
professional private citizens with the right range of business, financial and
technical experience. Finally, with recourse to water service revenues, a
corporation would be able to borrow on its own behalf to fund major projects,
on market terms and conditions, without competing with other municipal needs under
the constraints of the Municipal Act.
The Safe Drinking Water Act,
Section 51 permits a municipality to transfer ownership of a municipal
drinking-water system to a private company, but the municipality must ensure
that municipal responsibility for the system is maintained. The system would continue to be classified as
a municipal drinking-water system and would remain subject to all of the
requirements under the Act related to municipal drinking-water systems. In the Walkerton
Inquiry Part II Report, Justice
O’Connor did not support the transfer of municipal drinking-water systems to
private enterprises.
A successful example of
this model for a water distribution system is found in
Model 5 – Town as Owner; Appointed Jointed Municipal Service Board as the Operating Authority
Under this model a municipality may decide
to operate its water system in conjunction with another municipality under a
“regionalized” or “service area” model. The operation, but not the ownership of
the drinking-water system would be transferred to a Joint Municipal Service
Board. This type of corporation and
operating structure is recognized and permitted under Section 202 of the Municipal Act. The Joint Management Board then has the
option to operate the system with their own staff, or contract with an external
operating agency, such as the Ontario Clean Water Agency, a private company, or
one of the other municipalities for the day-to-day operation of the system. Typically
the Joint Management Board will contract out the operation of the system under
this model.
In this model, the ownership of the drinking
water system remains with the each of the participating municipalities, and the
municipalities retain all of the responsibilities of the owner under the Safe Drinking Water Act. Similarly, the contracted operating company
has the same requirements to be fully accredited under the Municipal Licensing
Program and to adhere to all the requirements of the Safe Drinking Water Act. The participating municipalities exercise
control over the systems through their representatives on the Joint Management
Board. These people act as directors on the Board,
but do not directly speak on behalf of the municipality they are appointed from
(ex-officio).
Further analysis is necessary to define the role that Council would have under this model. Since each council appoints directors to the Joint Municipal Service Board, the various councils may still be construed as still acting in an oversight role. Further analysis is also necessary to define the roles and responsibilities that that the Town would have with respect to revenue collection and sharing, service levels, and joint ownership of shared resources such as reservoirs and pumping stations.
An example of this model is the Lake Huron & Elgin Area Water
Supply Systems. The respective Joint Boards of Management for the Lake Huron Primary
Water System and the Elgin Area Primary Water System own and govern the water
treatment plants and the main transmission mains. This water is then provided at cost to the 13
participating municipalities. The City of
Model 6 – Transfer of Ownership and
Operation to
Under this model the Town would transfer ownership and operation of the
municipal drinking water system to the Region of York. The existing two-tier governance model for
York Region and the local municipalities is defined and described in the Municipal
Act. In 2002 York Region initiated a
review of this model, and the review was completed in 2005. At that time there was no support among the
local municipalities or Region to transfer ownership and operation of the local
water distribution systems to the Region.
The operation of the drinking-water systems that are owned and operated
at the Regional level has been found to work very well in Durham Region, Peel
Region and Halton Region. This model
allows for a harmonization of water rates, provides consistency in design and
construction practices, and equalizes customer service delivery across the
Region. The single tier model can also lead to greater financial strength and the ability to allocate
resources to where they are most needed. The single tier model reduces the
duplication of services and can provide savings due to the economies of
scale.
This model can
be criticized, however, in that it is less flexible to address local needs such
as customer service levels and coordination of capital projects in each
municipal area. If this model were to be implemented in York Region, it is
possible that the better financed systems will subsidize capital improvements
in the systems that did not invest sufficiently in their infrastructure
previously.
It should be noted that Model #5 and #6 correspond to the structural
and governance models advocated in the Watertight: the Case for change in
CONCLUSIONS:
There are many
models possible for the management and operating structure of the Operating
Authority for the
Given that the
Town must apply for accreditation as the Operating Authority prior to
Any delay in
accepting the recommended organization and management of the Operating
Authority may preclude the Town from applying for full accreditation by
If it is the
desire of Council to proceed with an alternate operating model or structure
from that which is currently in place it is recommended that a working group be
established consisting of staff from the Legal, Finance, Human Resources and
FINANCIAL CONSIDERATIONS AND TEMPLATE: (external link)
There are no immediate Financial implications resulting from the
recommendations of this report.
ENVIRONMENTAL CONSIDERATIONS:
Not Applicable
ACCESSIBILITY CONSIDERATIONS:
Not Applicable
ENGAGE 21ST CONSIDERATIONS:
Not Applicable
BUSINESS UNITS CONSULTED AND AFFECTED:
Staff within the Legal Services department were consulted during the preparation of this report.
RECOMMENDED
BY: ________________________
General
Manager,
________________________
Peter Loukes
Commission
Lead,
Q:\Commission Share\Operations and Asset
Management\Reports\2008\Waterworks\Municipal Licensing Program\Governance
Options for the Operating Authority.doc